The situation could boost demand for pork processed by Smithfield Foods (SFD 23.97, +1.28, +5.64%) and Tyson Foods (TSN 20.05, +0.44, +2.24%) , which also sells beef. In 2010, the U.S. accounted for 40% of Japan’s total pork imports on a metric-ton basis and 18% of its beef imports, according to the USDA.
BB&T Capital on Wednesday upgraded Smithfield and Tyson shares to a buy, citing among other factors, the likelihood of increased Japanese imports of pork and beef as well as disruption in the country’s domestic livestock production resulting from the tragic earthquake and tsunami.
One thing I know about the Japanese is that they are really careful when it comes to food safety. So if domestic pork and beef has high levels of iodine in them they will be tossed aside in a heartbeat. So this could mean large amount of added demand from the Japanese market going forward.
I mean imported beef, chicken, and pork from the US might be viewed as much safer than the unknown domestic supply for the time being. There was already all sorts of problems with Japanese cattle having hoof-in-mouth disease last year so beef supply was already constrained.
From some quick research I can see that both stocks seem fairly cheap by most metrics. Both companies are making money and growing their earnings fairly well for the most part. In fact TSN grew their revenue by 14.8% and earnings 86% year over year. Paying a cheap multiple for that kind of growth sounds pretty good to me.
The only thing that jumped out at me on SFD was its pretty high amount of debt on their books. 2.83 billion which is a 91.5 debt/equity level. Tyson only has a 45.95 debt/equity ratio. But SFD has been reducing their long term debt load each quarter according to their balance sheet. Both companies might be a decent buy depending on how this Japanese radiation issue works itself out.
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